US Dollar (USD) Upside Momentum Lost on Political Jitters
A sense of uncertainty regarding the economic plans of the new US administration has weighed on the US Dollar (USD) at the start of the week. Fears of greater protectionism have spooked investors, eliminating some of the earlier optimism over promised tax cuts and fiscal stimulus measures. As markets are still not entirely sure what to expect from the Trump presidency, other than more hard-line rhetoric, the ‘Greenback’ has struggled to find any particular support at this juncture.
The appeal of the Canadian Dollar (CAD), however, has been limited by signs of increasing oil production in the US. This could see the positive impact of OPEC’s agreed output cut limited, maintaining the global oversupply glut for longer and weighing on prices as a result. Confidence in the outlook of the domestic economy was also diminished by disappointing wholesale sales figures, which dipped from 1.3% growth in October to just 0.2% in November.
USD CAD Exchange Rate Forecast: Weaker US GDP Could Weigh on ‘Greenback’
While the primary influence on the US Dollar, in the short-term at least, is likely to remain political developments, some volatility could be seen in response to the fourth quarter Gross Domestic Product report. Confidence in the ‘Greenback’ could be further dented by signs of weakening domestic growth, with forecasts pointing towards a dip from 3.5% to 2.2% on the year. If the latest personal consumption expenditure data also disappoints this could prompt the USD CAD exchange rate to trend sharply lower, given that the Federal Reserve’s preferred measure of inflation is derived from the figure.
Another increase in US crude stockpiles on Wednesday could put increased pressure on the Canadian Dollar, which remains vulnerable to negative developments in the oil market. Rising US inventories would likely prompt Brent crude prices to slide further, stoking concerns that the issue of oversupply is still far from solved. In the absence of any major Canadian data in the latter week the ‘Loonie’ could soften in response to any deterioration in market risk appetite, as researchers at Danske Bank noted:
‘We think there is an increasing chance that global risk sentiment could be affected by a possible stand-off between China and the US. More long-term there may be risks to a global recovery from more protectionism in the world economy.’
Current USD, CAD Interbank Exchange Rates
At the time of writing, the US Dollar to Canadian Dollar (USD CAD) exchange rate was trending higher in the region of 1.32, while the Canadian Dollar to US Dollar (CAD USD) pairing was slumped at 0.75.
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